A Few Different Kinds of Business Credit

The choices can be confusing so here are some basic definitions.

Store/Vendor Credit
When businesses need to buy office supplies, products to resell, or
materials to manufacture products, they often purchase them on
credit terms. The terms give the business from 30 days to 90 days
to pay for the materials. Sometimes the company offering the terms
will add a finance surcharge to the total purchase, or offer a cash
discount, if payment is made within a certain time frame, say ten
days.

A credit application can be required to obtain the credit and a
credit report as well. Occasionally the store or vendor doesn't
require anything and will just bill the business for the
merchandise or service.

The US Postal Service doesn't offer any sort of credit to
businesses for delivery services but many other delivery companies
do.

Business Credit Cards
Are issued to the business and are used much the same way as
personal credit cards are. They're helpful when nothing but a
credit card is accepted such as car rentals or hotel stays. The
interest rate is rather high just like personal credit cards.
Business credit cards can be helpful when tracking business
expenses, travel for example and separating it from personal
expenses. It also eliminates the need for expense reports if you
use the business card and not your personal credit card.

Consignment
Consignment is simply offering goods for sale that you don't own.
The goods are provided to you on credit. The catch is that you pay
for the product only when and if it sells. If it doesn't sell you
return the product to its owner. This works most often in retail
establishments. An agreement has to be signed with the owner of
the merchandise with the consignment terms. The business pays the
owner a percentage of the retail price and retains a commission for
the sale. The commission can be up to 40% of the retail price.
The entire bookstore industry is set up on the consignment system.
Bookstores have up to 90 days to pay for books and can return them
up to one year if they don't sell.

Leasing
Most autos these days are offered on a lease as well as a straight
purchase option, but there are all sorts of other types of
equipment that can be leased as well. Leasing can work if the
product tends to become obsolete quickly or is only needed for a
two or three year time period. Leasing has an added advantage in
that you don't have to tie up cash but can spread out the payments
for the equipment over the life of the lease. For example you might
need to completely update your computer network. The cash outlay
might be $20,000 or $30,000 dollars, all paid right now. Leasing
lets you pay for the computer equipment as you use it over the next
two to three years.


Purchase Order Financing
You've been trying to convince a customer to award your business a
major contract to purchase thousands of dollars of your product.
They finally sign on the dotted line and you realize you don't have
enough product on hand to fill the order. Where do you find the
money to buy the materials and manufacture the product? Purchase
ordering financing does exactly that. The lender determines the
amount they will lend to you on the purchase order based on the
customer's credit worthiness. You will only get a percentage of
the value of the order, usually not more than 50% and the purchase
order financing will have to be paid back as soon as the order is
shipped.